Kobay Technology Bhd.’s 39% increase. (KLSE:KOBAY) demonstrates its popularity among investors

Kobay Technology Bhd. (KLSE:KOBAY) shares have continued their recent momentum with a 39% gain in the past month alone. Unfortunately, despite last month’s strong performance, the 9.6% year-to-date gain isn’t all that attractive.

Even after such a big price hike, it’s still not a stretch to say that Kobay Technology Bhd’s price-to-sales ratio (or “P/S”) of 2.3x is pretty “middle-of-the-road” right now seems. compared to Malaysia’s machinery industry, where the average price-to-earnings ratio is approximately 2.2x. While this may not raise any eyebrows, if the price-to-earnings ratio is not justified, investors may miss out on a potential opportunity or ignore an impending disappointment.

Check out our latest analysis for Kobay Technology Bhd

KLSE:KOBAY Price to Sales Ratio vs. Industry May 21, 2024

How Kobay Technology Bhd has performed

For example, consider that Kobay Technology Bhd’s financial performance has been poor recently as sales have fallen. One possibility is that the price-to-earnings ratio is muted as investors think the company could still do enough to be in line with the broader industry in the near future. If you like the company, you’d at least hope that you do, so you can potentially pick up some shares while it’s not quite to your liking.

Do you want a complete picture of the company’s income, turnover and cash flow? Then our free report on Kobay Technology Bhd will help you shed light on its historical performance.

What do the revenue growth metrics tell us about the P/S?

To justify the price/earnings ratio, Kobay Technology Bhd would need to achieve growth comparable to the industry.

Retrospectively, the past year saw a frustrating 10% decline in the company’s revenue. Yet there has been an excellent overall sales increase of 93% over the past three years, despite unsatisfactory short-term performance. Accordingly, while shareholders would have preferred to keep the trend going, they would certainly be happy with the revenue growth in the medium term.

It’s interesting to note that the rest of the industry is expected to grow 27% over the next year, which is quite similar to the company’s recent medium-term annualized growth rates.

With this in mind, it’s clear why Kobay Technology Bhd’s P/S is closely aligned with its peers. Apparently shareholders are happy to simply cling to the assumption that the company will continue to keep a low profile.

The last word

The shares have risen significantly and now Kobay Technology Bhd’s price-to-earnings ratio is back within the range of the sector median. It is argued that the price-to-sales ratio is an inferior measure of value within certain sectors, but it can be a powerful indicator of business confidence.

As we’ve seen, Kobay Technology Bhd’s three-year revenue trends appear to be contributing to its price-to-earnings ratio, as they appear similar to current industry expectations. At this point, shareholders are comfortable with the P/S as they are confident that future earnings will not deliver any surprises. Unless recent conditions change over the medium term, they will continue to support the share price at these levels.

That said, be warned Kobay Technology Bhd is showing two warning signs in our investment analysis, and one of them doesn’t suit us very well.

If strong companies that make profits interest you, then you’ll definitely want to check this out free list of interesting companies that trade at a low price/earnings (but have proven that they can grow their profits).

Valuation is complex, but we help make it simple.

Invent or Kobay Technology Bhd may be over or undervalued if you look at our comprehensive analysis, including fair value estimates, risks and cautions, dividends, insider transactions and financial health.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.